Gen X, Millennial Australians better off than their parents – but not all

Australia is the land of the fair go, according to the Productivity Commission, with most people able to get ahead based on their talents and available opportunities and able to earn more than their parents.

But at the extreme ends of the income spectrum – the very poor and the very wealthy – people are less likely to move up or down the income mobility ladder, and there are early signs that the generation-on-generation income growth enjoyed by millions of Australians is stagnating.

Most Australians are able to earn more than their parents did, a new report has found.Credit: Dominic Lorrimer

The Productivity Commission report on economic mobility in Australia found that about two-thirds of “Xennials” – Gen Xers and Millennials born in the late 1970s to early 1980s – were earning more than their parents did at a similar age.

Productivity Commission chair Danielle Wood said economic mobility was important because it meant people’s hard work and talent determined their life outcomes rather than how well their parents did.

“We don’t have as many clear markers of class,” she said.

“We do have a high degree of mobility. So we’re not trapped by where our parents were on the income distribution, it seems to have very little impact on where we end up.”

The research found Australia had relatively high economic mobility compared with peer countries, including the UK and the US.

“Compared to the US and other countries, which also have national mythologies around opportunity and not being stuck where your parents are, I think it was very pleasing to see how well we came out in that comparison,” Wood said.

One critical factor helping Australians earn more than generations past was education. The report found that on average, someone with a bachelor’s degree or higher earned 23 per cent more than someone who completed up to year 12, and 35 per cent more than a person who reached year 11 or below.

Long-term economic growth has also been key to helping each generation earn more than before, Wood said.

“There’s much more opportunity for young people to get in and to start their career and to move up in their career in a world where the economy is growing strongly compared to where it’s stagnant,” she said.

While most people end up in the big movable middle, Wood said people at the extreme ends of the income spectrum were less likely to be mobile, which was “a little bit Downton Abbey”.

“If your parents were very well-off, you’re more likely to be very well-off. Conversely, if your parents were poor or in poverty, you’re more likely to end up there,” she said.

Wood said many people end up in poverty temporarily, but some get stuck in a poverty cycle, with renters, people with poor health or those living in poor areas, women or older people more at risk. The report found that poverty could be inherited.

“Younger people whose parents were on income support payments are twice as likely to end up on income support payments themselves, compared to others,” she said.

At the opposite end of the spectrum, people whose parents were in the top income bracket were more likely to remain there, and wealth – more than income – kept younger generations in the top brackets.

Wood said wealthier parents have a greater capacity to invest in their children’s education and could also help their children build wealth by helping them into the housing market or through inheritances.

“Wealth seems to be more important in cementing cross-generational privilege, so even though we found that income is pretty mobile, wealth is a lot more sticky,” Wood said.

While most generations have enjoyed higher incomes than their predecessors, slow economic growth has meant Millennials born in the 1990s are the first group that haven’t seen their incomes rise relative to those born in the 1980s.

Wood said those Millennials have suffered because Australia experienced really sluggish wage growth in the decade following the GFC.

“This generation-on-generation progress is premised on the idea that we have healthy income growth that allows this generation to be better off, and that has fallen away with the younger Millennials,” she said.

It was too early to say how much this would affect Millennials and younger generations in the future, but she said there were concerning signs about income mobility.

“I think there’s definitely a risk that we become less mobile over time,” she said.

“How future generations fare will depend on how successful we are at keeping a healthy labour market and keeping real wages growing.”

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